XM Satellite Radio Holdings Inc., a District company planning to beam up to 100 channels of FM radio from satellites to listeners' cars nationwide, launched a $120 million initial public stock offering yesterday to continue development of the $1 billion project.
The company also said it will establish new headquarters on New York Avenue north of Union Station. The move was cheered by D.C. officials, who hope XM Satellite Radio will anchor a new cluster of technology and telecommunications companies between New York and Massachusetts avenues on the east side of downtown.
The D.C. government has offered XM Satellite tax benefits that could be worth an estimated $10 million a year if the company's venture succeeds.
"XM Radio's decision to locate in our city demonstrates the District's ability to be competitive with our surrounding jurisdictions in attracting high-tech businesses," D.C. Mayor Anthony A. Williams said.
"We've been working with them constantly since February," said Doug Patton, the District's deputy mayor for economic development. "We kept enticing them, wooing them."
XM Satellite and competitor CD Radio Inc., based in New York, are the only companies licensed to offer radio broadcasts via satellite. Both say they plan to charge subscribers about $10 a month for the service, which will permit listeners to receive uninterrupted programs as they move between cities.
Like cable television, the radio networks will provide specialized programming of many kinds, from country, classical, gospel and rock music formats to public affairs and financial news broadcasts.
"We can aggregate niche audiences around the country," said XM Satellite's president and chief executive, Hugh Panero.
XM Satellite said the bulk of its development costs still lie ahead, including the launch of two satellites that will deliver the service.
Before yesterday's IPO, it had raised about $331 million from investors and lenders, including its parent company, American Mobile Satellite Corp. of Reston; General Motors Corp., whose cars will carry the special radios required to receive the service; and three investment firms, including Columbia Capital of Alexandria and Telcom Ventures of McLean.
Yesterday, XM sold 10 million shares, with the price reaching a high of $13.12 1/4 and closing at $12, the offering price.
XM Satellite said it will need an additional $633 million to get the service up and running by the target date of mid-2001.
It is in a footrace with CD Radio, which is expected to launch its service early in 2001.
XM's first imperative is to line up agreements with the principal automobile manufacturers to offer the radios in new models. CD Radio has such an agreement with Ford Motor Co., countering XM Satellite's agreement with General Motors, noted William Kidd, an analyst with C.E. Unterberg, Towbin.
"The next 15 months will be incredibly important in determining at least the start of the competition," Kidd said. "If either company could sign two or three [auto companies] in a row, that would bode poorly for the other. Right now it's pretty even."
If it remains even, the potential market should be more than big enough to support both companies, Kidd predicted. He said he expects radios designed for the satellite service will cost $50 to $75 more than ordinary radios.
"The entire industry can break even with 6 million customers," he said.
For its headquarters, XM Satellite will rent 120,000 square feet of space at 1500 Eckington Place NE, just off New York Avenue and near the site where D.C. officials would like to open a new Metro stop on the Red Line.
If the company's plans proceed on schedule, more than 300 people will work at the site, filling about half the building. It now has about 60 employees in downtown Washington.
The other half of the newly renovated former printing warehouse is rented out to Qwest Communications International of Denver, which runs a telecommunications switching operation there.
Together, the two are the first tenants to sign up for what developers and city officials see as a new high-tech neighborhood.
"We were competing between us and Maryland, and the mayor and Doug Patton really went to bat and helped bring this great new company to Washington," said Stuart Bernstein, a developer whose company is one of the owners of the Eckington Place building.
"With a radio culture, we want to be part of a vibrant urban community," Panero said. "Being on New York Avenue is more inspiring than being in an office park somewhere."